Mexico: little growth in 2025 but good long-term potential

The overall level of GDP at market exchange rates is only 6% of the size of the US. At PPP rates, GDP per head is 29% of the US level. A growing population over the next 25 years is forecast by the UN, with the share in the 15-64 age group staying at around two thirds. These demographic trends will support longer-term economic growth potential, which we se as almost 2% p.a. over the next fifteen years.

Data for the first quarter of 2025 show modest GDP growth, probably helped by exports to the US ahead of tariff increases. The major uncertainty for 2025 relates to the eventual shape of tariffs, with the US and the USMCA (formerly NAFTA) area. The IMF's latest forecast sees a small contraction (-0.3%); the OECD sees a small rise; and consensus forecasts are hovering around zero growth.

Core inflation is (just above) the top of the 2-4% target range.

Mexico has a low level of CO2e emissions per head but s not on track for net zero by 2050.

The level of government debt (61% of GDP) is not particularly high and is broadly sustainable in the sense that it is expected to rise very marginally over the next five years.

Current account deficit is small but Mexico has substantial net foreign liabilities, a potential source of vulnerability.

Broad money growth has slowed a little but is still too high. The policy interest rate has been cut to 8% but still looks too high, given inflation and growth trends.

Mexico is still mired in corruption. Competitiveness and innovation measures are not great; but Mexico is a relatively free economy.